Japan trading firms likely Gavilon buyers - sources

NEW YORK/TOKYO (Reuters) - Japan's top trading companies have emerged as frontrunners in the race to buy Gavilon as the U.S. grain and energy trader seeks final bids this week, according to several people familiar with the matter.

Marubeni Corp (8002.T), Mitsubishi Corp (8058.T) and Mitsui & Co (8031.T) have all been evaluating bids for all or part of Gavilon, even as they consider the valuation of over $5 billion (3.09 billion pounds) by the company's owners expensive, the sources said.

A purchase of Gavilon by Japan Inc would extend a string of recent overseas acquisitions that has marked the emergence of Japan's trading houses as controlling investors in high-profile raw materials projects ranging from oil to iron ore to liquefied natural gas.

Representatives of the three Japanese trading companies all declined to comment. Gavilon had no immediate comment while its financial adviser, Morgan Stanley (MS.N), declined to comment.

Gavilon has a sizeable presence in key U.S. agricultural markets, boasting the third largest U.S. grains marketing network behind Archer Daniels Midland (ADM.N) and Cargill. It also has a large footprint in the U.S. fertilizer market, an energy operation that includes 7 million barrels of crude oil storage, and a large oil, grain and ethanol trading unit.

Marubeni, which is interested in buying all of Gavilon, has been particularly active in considering its bid, and has been conducting detailed due diligence by dispatching a team of auditors to Gavilon's Omaha headquarters, according to some of the sources, who asked not to be named because the talks remain private.

Mitsubishi also is interested in acquiring the company as a whole, one of the sources said.

Mitsui, on the other hand, has indicated that its interest was in Gavilon's oil-related operations, rather than the entire firm, a separate source close to the Japanese company said.

Owners of Gavilon, who include hedge fund manager Dwight Anderson and billionaire investor George Soros, have told interested parties that they prefer to sell the company in its entirety, people familiar with the matter have said. That could make Mitsui as a less likely buyer.

VALUATION EXPECTATIONS

The company, with 2,000 employees, was hit along with its rivals last year by volatile grain markets, and the Japanese bidders have questioned the valuation expectations set by Gavilon's owners, the sources said.

Gavilon has projected $650 million in 2012 earnings before interest, tax, depreciation and amortization (EBITDA). The company has hoped to reach a multiple of eight times EBITDA in a sale, which would transfer to a value of more than $5 billion.

But the strong yen has given Japanese trading houses an edge in an overseas buying spree that has taken shape over the past year.

Several Western buyers, including Swiss trader Glencore International (GLEN.L) and U.S.-based Bunge Ltd (BG.N), had previously expressed interest in buying Gavilon, which received initial bids in early March, according to the people familiar with the matter. It is not clear if anyone else other than the Japanese trading firms remains in the race.

Glencore had considered a Gavilon purchase earlier this year, but its interest cooled after it agreed to buy Viterra Inc, Canada's largest grain handler, for $6.2 billion in late March, sources told Reuters previously.

Industry sources had also discounted Gavilon's two larger rivals - Archer Daniels Midland and Cargill - as potential buyers because of high antitrust hurdles.

Meanwhile, another Japanese trading company, Itochu Corp (8001.T), has decided not to pursue Gavilon after looking at the company's businesses, a separate source close to the matter said.

Japan is the world's biggest importer of corn, used chiefly in animal feed, and its trading firms have been aggressively turning overseas as an aging population caps demand at home for agricultural products.

Marubeni, with annual grain trading volume of 20 million tonnes, is pursuing global grain sales operations and has partnered with China's Shandong Liuhe Group, its largest farming corporation, in livestock and feed operations, according to the firm's website.

Mitsui, which has pledged to strengthen grain as one of its core businesses, already owns United Grain Corp, a U.S.-based exporter of corn, soybeans and wheat, and large swathes of cropland in Brazil.

The firms are also hungry for other resources. In March, Marubeni was part of a group of investors that paid $3.6 billion for a 30 percent stake in an Australian iron ore project. Earlier this week, Mitsui and Mitsubishi said they would invest $2 billion for a stake in an Australian LNG project.

Cairo-based Orascom Construction Industries, which invested in the 2008 deal that created Gavilon and has a stake of about 17 percent, said in late March that it expected a sale would close soon.

"We have received some interest and we expect a result in the imminent future," Orascom Chief Executive Nassef Sawiris told analysts on a conference call.

(Reporting by Soyoung Kim in New York and Emi Emoto in Tokyo, additional reporting by Michael Erman and Risa Maeda; Editing by M.D. Golan and Richard Chang)